Anthony Santomero

By SANDY SMITH

A longtime scholar of the worldwide
banking system, the Wharton professor gets a rare opportunity to
translate his research into action.

Photoby Candace diCarlo

When Britains Monty Python comedy troupe wrote, Everyone
must hanker for the butchness of a banker/ Its accountancy that
makes the world go round, they probably could not have envisioned
a time when millions of dollars of assets vanish in a day just because
Federal Reserve Chairman Alan Greenspan made some off-hand remark.

But that time has come. And with it, the Federal Reserve System
the nations central bank, and an institution that most people once
paid little attention to has become a major player in the national
economy.

Anthony Santomero, Ph.D., the Richard K. Mellon Professor of Finance,
on the other hand, could see this day coming. The former Wharton deputy
dean and former director of the Wharton Financial Institutions Center
has spent three decades studying the global banking system, doing research
and analysis in a period when Americas banking industry moved from
a collection of tightly-regulated local institutions to a more loosely
regulated universe in which a handful of national giants dominate a landscape
dotted with thousands of boutique banks.

Named over the summer the president of the Federal Reserve Bank of Philadelphia,
one of the 12 regional Federal Reserve banks, hes now in a role
where he can apply his research to keeping the regions banking system
in good working order and, in his role as a rotating member of
the interest-rate-setting Federal Open Market Operations Committee (FOMC),
keeping the economy of the country humming.

We interviewed Santomero about his new job and its relation to his old
one in his spacious, ash-panelled office at the Philadelphia Fed with
a view of Independence Mall outside his balcony.

Q.Were you surprised to be picked to head the Philadelphia Fed?
A. Well, I was somewhat surprised and honored. Its an important
position both within the overall [economic] policy community and also
here in Philadelphia.

Q. How does your expertise in the study of financial institutions
translate to your role here?
A. Quite nicely. Ive spent almost 30 years at the University
of Pennsylvania in the finance department, and over the last close to
10 years in the Financial Institutions Center, studying the financial
sector. We did some major studies on the retail banking system [and] we
contributed to the debate on regulatory change that ultimately led to
the Financial Modernization Act [that deregulated the banking industry].
So Ive been part of the community of scholars working with regulators
and policymakers for a long period of time. As a result of this new appointment,
I will be directly involved in that policy community. So its an
opportunity to contribute in a different way something that Ive
been engaged in for 30 years.

Q. I can remember when the public paid little attention to the Federal
Reserve. Now people are hanging on Alan Greenspans every word. Is
it more exciting to work here in this sort of environment?
A. The activities of the central bank have become much more of interest
to the general press youre absolutely correct there. I think
that part of the reason that people have become more conscious of [the
Feds] activities is that theyve become more sensitive to their
retirement positions, their own stock market positions. Its probably
the case that in a previous generation, my appointment would have caused
less of a stir than in this one.

Q. Are you traveling to Washington more now?
A. I suspect that my total number of miles will actually go down,
but my frequency will go up. [At Penn, I spent] a good deal of time internationally,
looking at financial systems around the world. In this position Ill
be spending more of my time in Washington and dealing with [the] other
Fed banks.

Q. What kind of changes did you make in moving from Wharton to the
Fed?
A. The convenient portion of the switch was that I could maintain
my house and living standard. That was very nice. But my professional
life will be changing from an academic researcher and teacher to a policymaker.
[He has no plans to continue teaching, but will serve on the Financial
Institutions Centers advisory board.] Secondly, this position as
head of the bank also involves a good deal of managerial activity. This
bank has over 1,200 employees, so as a result Ill be spending more
time in management administration than I would have at Penn.

Q. What is the Feds job?
A. The [Federal Reserve] system is responsible for the stability of
the financial system. If you look at the Third District, we clear about
4.5 billion checks a day, over $100 billion [worth]. In addition, we have
now about 150 financial institutions that we supervise regularly, and
then on top of that is macroeconomic and national monetary policy.

Q. How does this bank play a role in that last item?
A. The Federal Reserve Board of Governors in Washington, in conjunction
with the bank presidents, meets eight times a year in [the FOMC]. At that
committee, they consider the state of the economy, and they look at each
of the regions, and each one of the bank presidents contributes the view
of their district about whats going on in the economy. And then
they decide how to affect the [money supply] and interest rates.
Everybody participates in each one of those [meetings],
but not everyone votes every meeting. Here in Philadelphia, we vote
every three years. My predecessor was voting last year and I will vote
again in 2002.

Q. Even though you dont get to vote this year, if it were up
to you, what would your recommendation be at the next FOMC meeting on
interest rates?
A. Many people have been trying to position me in this process before
I even walk into an FOMC meeting, and my answer has traditionally been,
I have to observe the process before I can figure out where I stand on
it. At this point, the Fed has done, I think, a magnificent job over the
last five to seven years maintaining high employment and low inflation
rates, and the challenge is to make sure the economy stays in this balanced
position.

Q. Are you looking forward to the challenges of your new job?
A. Very much so. I have been in various ways preparing for this position
for 30 years a combination of my research work and my administrative
activities. I have been doing all of the things that are part of this
position, so its really an opportunity to change gears in a field
that I know quite a bit about. It will stretch me, it will make me a contributor
to the aggregate policy of the economy. Its an exciting opportunity.

Above: Santomero in the boardroom of the Federal Reserve Bank
of Philadelphia.

Penn Current Express

Quoted Recently

“As we know from the research, the performance of a large firm is due primarily to things outside the control of the top executive. … We call that luck. Executives freely admit this—when they encounter bad luck.”

—J. Scott Armstrong, a professor of marketing at the Wharton School, on how executives can influence a company’s value. Limited research on the topic has mostly found that broader market forces often have a bigger impact on a company’s success than an executive’s actions. (The New York Times, Feb. 7, 2015)